Rationale

ARENA’s assessment of the potential for renewables in industrial processes is based on a study by IT Power conducted in 2014-15, which involved technical and economic analysis as well as consultation with industry.

Likely scale and potential for growth by 2030-40

In 2012-13 Australian industry was responsible for around 40% of final energy consumption in comparison to residential energy consumption, which represented about 11%. The majority of industry energy use was attributed to manufacturing with around 70% of manufacturing energy use attributed to natural gas for the production of thermal energy.

Although industry does use other fuels for the production of thermal energy for industrial processes, natural gas is by far the predominant fuel source. In light of this significant demand and the potential market opportunity for renewables represented by rising gas prices, ARENA commissioned consultancy group IT Power (Australia) Pty Ltd, working in conjunction with Pitt and Sherry and the Institute for Sustainable Futures at the University of Technology Sydney, to investigate the renewable energy alternatives available for industrial gas users.

The study analysed industry (primarily manufacturing) sectors that used gas for the generation of heat at temperatures up to 1300 degrees Celsius (oC). The sectors consumed approximately 412 petajoules (PJ) of gas in 2012-13, which is around 10% of Australia’s final energy consumption.

The vast majority of this gas use (80%) was attributed to sectors such as metals, alumina, chemicals and cement manufacturing, where gas is purchased at close to the wholesale price. Although the majority of gas use in these sectors is associated with high temperature applications, around 26% is attributed to low temperature applications (less than 250oC), primarily in alumina refining.

For the remaining 20% of gas use analysed, in which consumers pay close to retail prices, the predominant sectors were food, pulp and paper, and dairy manufacturing. The majority of energy use in these applications was at less than 250oC.

Bioenergy and solar thermal systems were found to be the most prospective renewable energy alternatives for the provision of industrial process heat. Bioenergy is particularly viable where low cost biomass is available close to the point of energy demand. Industry sectors that could provide this proximity include food, pulp and paper, and dairy manufacturing. There is also the possibility for biogas, if produced to a suitable standard, to replace natural gas as a feedstock for industrial processes.

Solar thermal technologies are most prospective for heating water or steam at temperatures below 250oC in areas with reasonable solar resources, such as Brisbane. Prospective sectors include resource processing (such as alumina refining) and some food manufacturing sectors.

Other options highlighted in the study included geothermal and air source heat pumps. Geothermal energy is most prospective for low temperature applications (up to 95oC) in locations where a suitable hot sedimentary aquifer is available close to the point of demand. Such locations are fairly limited in Australia, although opportunities would exist in the Great Artesian Basin.

For heat pumps, temperatures up to 95oC are the highest that could be provided from currently available standard solutions. The economics of heat pumps depends on the source and cost of electricity used to power the system. For systems powered completely by renewable sources (eg solar photovoltaics (PV)) the economics are unfavourable, due in part to a low capacity factor. The economics are more favourable for systems that are powered using grid electricity, to the point where heat pumps could be competitive with gas for process heating. Such competitiveness could be maintained if grid electricity was combined with solar PV.

ARENA will further investigate the potential for heat pumps, including the application of renewable energy to power these systems to make them completely renewable.

Based on the analysis of gas consumption and renewable alternatives, the potential viable market at this stage for the application of renewable energy for industrial processes is in the order of 50 to 100 PJ each year. Based on an assumed wholesale gas price of $9 a gigajoule, this market could be worth $450-$900 million each year, or slightly larger if renewables could substitute for a share of thermal energy sourced from other fossil fuels such as coal and fuel oil.

The future market size is dependent on the growth or contraction of the industry sectors that were analysed as well as the future development of renewable technologies, particularly cost reductions for high temperature applications. Assuming reasonably static total industry energy use, and renewable energy meeting most of that demand, the market for renewables could be up to 400 PJ and valued at $3.6 billion each year (assuming a gas price of $9 a GJ).

Achieving this would require major technology and supply chain improvements that enabled renewables to deliver heat at a price competitive with the alternatives (namely gas, coal and electricity).

Investment influence

To date the adoption of renewable energy for industrial processes has been limited to sectors such as the sugar and pulp and paper manufacturing sectors, where waste is used to generate heat. Adoption in other industry sectors has been limited due to perceived technical and commercial risks, which have led to higher financial risk premiums, along with uncertainties about the reliability of supply.

Financial assistance to enhance the deployment of renewable energy by industry has been provided through the Clean Energy Finance Corporation and previous Commonwealth Government grant programs, specifically the Clean Technology Innovation Program (CTIP).

Financial support by ARENA can assist in reducing barriers to the deployment of renewable energy for industrial processes. Grant funding and ARENA’s structured approach to knowledge sharing may assist in reducing technical and commercial risks by improving relevant experience and information on renewable energy alternatives.

A lack of effective business models has been identified as a barrier to renewable energy investment in industrial processes. Innovative new business models, such as agreements for the provision of thermal energy similar to a power purchase agreement, could enhance deployment of renewable energy and reduce risk. ARENA support can help technology providers or project developers test new business models to make them more attractive to industry.

However, in order for this to be achieved, the commercial capabilities of technology providers or project developers will need to be improved so that innovative business models can be developed. ARENA support can therefore assist in improving these capabilities by working with project proponents to improve business models so that they are more attractive to industry.

Research and development can also improve competitiveness for high temperature applications of renewables in industrial processes, with an emphasis on reducing the cost of bioenergy and solar thermal. Other research and development opportunities could be on short cycle biomass crops and more sophisticated supply chains that could reduce the cost of fuel supply.

Another potential avenue for renewable energy deployment in industry is the production of solar fuels, namely gaseous or liquid fuels produced using solar energy. ARENA support for research and development and early stage demonstration projects in this area could unlock opportunities for the production of fuels, such as hydrogen produced from water splitting using electrolysis, which can then be used in industrial applications as a fuel or feedstock such as in the production of ammonia.

Gap in ARENA portfolio

As at June 2015 ARENA had no deployment or demonstration level projects involving the application of renewable energy for industrial processes in its investment portfolio, but was aware of market interest in such activities.

Bioenergy projects for industrial processes were previously funded through CTIP. However there was a lack of structured knowledge sharing from this program and the application assessment process was criticised for being insufficiently focussed on maximising program objectives and not treating applicants equitably[1].

Therefore ARENA investment in bioenergy demonstration projects could allow for a more rigorous assessment approach to projects to ensure that suitable demonstration value was provided from investments. A structured approach to knowledge sharing would ensure that information and lessons learnt are shared with the market.

There are currently no commercial-scale solar thermal projects providing thermal energy for industrial processes in Australia. Therefore ARENA investment in solar thermal pilots and demonstration projects could help to enhance the deployment of solar thermal technologies for Australian industry, with appropriate knowledge sharing assisting to reduce the technical and commercial risks associated with the technology.

ARENA support for research and development into high temperature solar thermal technologies, short cycle biomass crops and the application of geothermal technology for industrial processes could assist in opening up more of current gas consumption to renewable alternatives.

ARENA’s 2015 research and development funding round was open to applications in this field. Therefore ARENA will review the value of further projects in this area once successful projects in the 2015 funding round are known.